Service centers are caught in the middle of a bureaucratic recordkeeping Catch 22 as government regulators attempt to stem the trade of conflict minerals.

By the Staff of Metal Center News

U.S. red metals distributors are several steps and half a world removed from the mining of raw materials that go into their products, but that does not immunize them from the effects of new trade regulations designed to restrict the trade of conflict minerals.

Raw materials designated as conflict minerals include tin, tantalum, tungsten and gold mined in the Democratic Republic of the Congo and several surrounding African countries. Tin is used widely in brass alloys and in tin plating of steel. Sales of these minerals are being used to supply armed groups that have committed untold atrocities since 1998. An estimated 5.4 million people have died due to starvation and deprivation stemming from the conflict in the region. As a result of pressure from human rights groups, Congress has passed rules designed to prevent the trade of products containing these African conflict minerals in the United States.

The conflict minerals regulations, part of the Dodd-Frank Wall Street reform act, require publicly traded companies to report to the Securities and Exchange Commission on the origin of the minerals in their products. Thus these companies will expect the producers and distributors of the copper and brass they buy to certify that their products contain none of the offending materials.

“We’re seeing more and more government regulations being designed to put pressure on the supply chain to accomplish varying social objectives. This is causing some unique concerns for all of us,” said John Arnett, government affairs counsel for the Copper and Brass Fabricators Council, who spoke April 12 at the Copper and Brass Servicenter Association annual meeting in Amelia Island, Fla. His message: Distributors must begin to familiarize themselves with the ins and outs of the new regulations, at least as much as the ill-defined law allows.

The rule only applies directly to publicly traded companies, and there’s no penalty for non-compliance by privately held companies affected indirectly. However, any company that either buys from or sells to a publicly traded company, including most metals distributors, will likely have to deal with the new regulations to some degree. To avoid negative publicity associated with using conflict minerals, large brand-name companies will demand compliance all the way up the supply chain, Arnett said.

Numerous trade groups have been critical of the rule because its wording leaves many questions unanswered, making compliance difficult. Technically, the rule only applies to those publicly traded manufacturers that make products for which conflict-type minerals are necessary in order to function. Does a distributor who processes metal products qualify as a manufacturer? That is not well defined in the rule, Arnett said.

Not being a large manufacturer does not necessarily let service centers off the hook, as they may have to respond to customers who expect them to certify their products are conflict-mineral free. CBFC suggests that distributors form an in-house conflict minerals team to analyze where products come from and where they go. “An open dialog with suppliers is imperative,” Arnett said.

Thankfully, scrap is excluded from the rule, as it would be impossible to determine the provenance of each piece, he added.

Next, service centers should perform a Reasonable Country of Origin Inquiry, making a good faith effort to determine if the conflict minerals originated in the DRC or the other offending countries. The RCOI is another area in which the rule is poorly defined, Arnett explained. The U.S. State Department has been unable to determine conclusively which mines in the region of Africa are contributing to the conflict. The state department has offered up a map, “but it cannot be considered a source of sufficient information to serve as a substitute for the exercise of due diligence by companies in the supply chain,” the legislation reads. The government is expected to release a more definitive list of the offending mines soon, he noted.

The U.S. Chamber of Commerce and National Association of Manufacturers have filed suit against the SEC, challenging the rule. As a result of that litigation, the SEC is not answering any questions from the supply chain on the rule itself. “We’re stuck with the problem of trying to make judgments on how to comply with the rule without any guidance from the agency beyond what’s in the rule,” Arnett said.

The rule only affects U.S. companies for now. While Europe is likely to follow suit, China, Russia and other countries are not considering such human-rights based regulations. This may give companies from those countries a competitive edge, as they can continue to source raw materials from anywhere. Determining the country of origin for products they import into the U.S. will be that much more difficult.

“If based on your Reasonable Country of Origin Inquiry you reasonably believe the conflict minerals in your products came from scrap or did not come from a covered country, you’re done. That’s the end of the process,” Arnett said.

First reports from covered companies are due to the SEC on May 31, 2014, covering products produced in calendar year 2013. Though that date of compliance is fast approaching, U.S. industry remains mostly unprepared, says global analysis firm IHS. A recent survey by IHS found that more than one-third of U.S. firms have not begun compliance planning for the conflict minerals rules.

[“We’re seeing more and more government regulations being designed to put pressure on the supply chain to accomplish varying social objectives. This is causing some unique concerns for all of us.” John Arnett, Copper and Brass Fabricators Council]

CBSA: ‘62 Years Old and Thriving’

In his state of the association address at last month’s annual meeting, CBSA President Scott Immell of Scioto Metals in Lewis Center, Ohio, greeted attendees with a message of progress. Following is an edited transcript:

“Our association is 62 years old and thriving, and many of us are seeing signs of the economic recovery. Our businesses are leaner and more agile, and we’re more likely to think more innovatively and strategically than we were just a few years ago. In addition to our [four] new members, the registration for this convention is another positive indicator. We have 155 people registered, up to pre-recession levels.

“Although this past year has gone by quickly, we have gotten a lot done. The CBSA Strategy Task Force contacted each and every member company and came back with very solid data on the wants and needs of the membership. That has led us to re-configure the committee setup to facilitate new expansive educational programming.

“The new CBSA website will have an expanded Members Only section that offers a one-stop place for all of our industry and economic data. It is the first big step towards enhancing our online resource offerings.

“The efforts of the Membership Committee, CBSA staff and grass roots contributions from membership have brought our number of members to the highest in years. That’s no small feat in today’s business climate.

“Looking back over just some of the highlights, it is obvious that none of this gets done without the contributions of many people. From my perspective, that brings us back to the strength of this organization. Since its establishment, the singular focus on the distribution, production, and promotion of copper and copper alloy products has given us a common goal. My sincere thanks to everyone who has helped make this a successful year for CBSA. Over the next year, we will continue to explore how CBSA can help its members grow stronger. I can assure you CBSA’s board and staff are up to the challenge.”

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